Thursday, April 30, 2009

On April 29, 2009, the Pennsylvania Supreme Court unanimously held, in a Majority Opinion written by Chief Justice Castille in Clifton, et al. v. Allegheny County, Nos. 20 & 21 WAP 2007 (PDF, 53 pages), that "the base year method of property valuation, as applied in Allegheny County [PA], violates the Uniformity Clause. We therefore agree that a countywide reassessment is required."

The present appeals call for us to consider the constitutionality of Pennsylvania’s property assessment laws.1

Presently, the assessment laws of the Commonwealth neither require nor do they prohibit periodic property reassessments, and thus they permit real estate taxes to be levied on property values that are based upon a stagnant “base year market value” for an indefinite period of time. Allegheny County has adopted such a base year system.

In a thorough opinion and order, the Court of Common Pleas of Allegheny County, per the Honorable R. Stanton Wettick, Jr., found that, because a base year assessment method that does not require periodic reassessments inherently causes significant disparities in the ratio of assessed value to fair market value, the Commonwealth’s property assessment laws were facially unconstitutional as they violate the Uniformity Clause of the Pennsylvania Constitution, A.CONST. art. VIII, § 1, which requires equality of taxation. * * *

[Footnote 1: When referring generally to “assessment laws,” we are referring to the General County Assessment Law, 72 P.S. §§ 5020-1 to -602, the First Class County Assessment Law, 72 P.S. §§ 5341.1-5341.21, the Second Class County Assessment Law, 72 P.S. §§ 5452.1-5452.20, the Second Class A and Third Class County Assessment Law, 72 P.S. §§ 5342-5350k, and the Fourth to Eighth Class County Assessment Law, 72 P.S. §§ 5453.101-5453.107]

The Pennsylvania Supreme Court agreed with the trial court as to the unconstitutionality of an indefinitely-applied base year concept as proven in Allegheny County, but did not require, as did the trial judge, annual market reassessments of real estate for taxation purposes, instead leaving the crafting of a constitutionally-acceptable, countywide real estate tax assessment mechanism to the legislature.

[T]he Allegheny County scheme, which permits a single base-year assessment to be used indefinitely, has resulted in significant disparities in the ratio of assessed value to current actual value in Allegheny County.

The disparity is most often to the disadvantage of owners of properties in lower-value neighborhoods where property values often appreciate at a lower rate than in higher-value neighborhoods, if they appreciate at all. * * *

In beginning its examination of Pennsylvania's real estate tax assessment system, the Court reached all the way back to "ancient Egypt, Babylon, and Persia", through medieval England, and up to colonial America.

The Court examined the post-1982 real estate assessment system in Pennsylvania, when "the assessment laws governing the different counties were amended so as to allow counties to utilize either a current market value method or to adopt a base year market value method in arriving at the assessed value of each property in the county."

The court cited examples of what has happened to property taxes in the Woodland Hills School District since the county implemented its base-year system. Between 2002 and 2005, for example, the court showed that property values in Braddock declined by 16 percent while they went up by 35 percent in Edgewood.

Justice Max Bear wrote a concurring opinion as the court returned the case back to Common Pleas Court where it asked "the trial court to determine Allegheny County's progress in executing a county wide reassessment and to set a realistic time frame for its completion."

As a result, the justices wrote, "Allegheny County is currently left with a broken system of property taxation." * * *

"We find no ineluctable constitutional deficiency with the use of a base year system: it is only through the passage of time that a base year assessment will become stale, and thus unconstitutional," said the court.

The article noted that, "[s]o far, this ruling has no effect on any other county that has a base-year assessment system.

It is not our charge to determine what may be the best system of assessment. Nor is this Court capable of fixing a point in time at which a base year automatically becomes unconstitutionally non-uniform.

As the trial court noted, the General Assembly is the appropriate place in the first instance to fashion a more comprehensive and soundly constitutional scheme. To that end, the trial court has provided a useful survey of the property assessment methods of our sister states, which shows that twenty-two of our sister states require annual reassessments, while twenty-six permit reassessments to be conducted at intervals over one year, though they still require periodic reassessment.

Pennsylvania is the only state where legislation allows the use of a base year indefinitely. * * *

The Court then issued its ruling:

Ultimately, our task is decisional, and Allegheny County is currently left with a broken system of property taxation.

In its effort to fashion a remedy, the trial court directed the Chief Assessment Officer of Allegheny County to conduct a reassessment no later than March 31, 2009, for use in the 2010 tax year, even if this Court had not yet issued a final order.

We agree that reassessment is required. However, recognizing that the passage of time may require adjustment by the trial court, we will remand this matter to the trial court to determine Allegheny County’s progress in executing a countywide reassessment and to set a realistic timeframe for its completion.

This case should nudge the Legislature to amend the assessment laws for reasonable, periodic countywide reassessments of property values used for real estate taxation.

The newsletter, available online in PDF format (4 pages), contains articles about elder law practice in addition to those regarding legal education and activities of that law school's elder law clinic, in Carlisle, PA:

The Creative Grandparent, by Prof. Katherine C. Pearson (p. 1)

Alumni Spotlight: Elder Law Attorney and DSL Alum Shares His Insight on Being Entrepreneurial, by Trish Cowart, Esq. (p. 1)

Representing the Public as Attorney for the Commonwealth, by Eric Ladley & Jason Lau (p. 2)

Creating an Alternative Career with a Law Degree, by Lisa Leicht (p. 3)

Managing a Non-Profit Law Firm, by Ashley Clark (p. 4)

In reviewing the other resources of this elder law clinic, I noted that its lists have been updated recently, thus remaining an excellent source of information and referrals. See: the Elder Law Resource Center. which explains its Elder Law Bibliography.

Update: 04/29/09:

Looks like I unintentionally "scouped the story" about the issuance of this newsletter!

Katherine Pearson sent me an email message this morning, noting that I announced the posting of the Newsletter before the printed version becomes available:

I noticed you had already found my Spring issue of Adventures in Law and Aging.

Thanks for the promotion. I haven't even got the hard copy from the printer yet!

Friday, April 24, 2009

Congress returned from its Spring Recess on April 20, 2009, and now confronts many significant issues. Among them is federal estate tax reform, presently sent to House and Senate Conference Committee negotiations in anticipation of acceptable legislation.

On April 9, 2009, Web CPA posted an article entitled "Estate Tax Planning for 2009 and Beyond" by Jonathan M. Forster and Jennifer M. Smith, who summarized the pressing need for federal legislation, and updated the political situation just before that Spring Recess:

Senate Finance Committee Chairman Max Baucus, D-Mont., unveiled a proposal last month to make permanent key features of the 2009 estate tax rules. President Obama also has voiced support for freezing 2009 rates and exemptions. * * *

The Senate version of the budget plan passed by Congress last Thursday included a bipartisan amendment that raises the estate tax exemption by $1.5 million to $5 million for individuals and $10 million for couples, and cuts the maximum rate from 45 to 35 percent.

However, the House version, which was also approved Thursday, maintains the estate tax at 2009 levels. Under the House version, which preserves Obama’s proposal, individual heirs would be able to exempt $3.5 million from taxes, while couples could exempt $7 million. Amounts above the exemption cutoff would be taxed at 45 percent.

A conference committee will resolve the differences between the House and Senate versions after Congress returns from recess later this month. * * *

Reconsideration of federal estate, gift, and generation-skipping tax legislation now occurs in a vastly different setting than in the past. These taxes are no longer viewed in a segregated philosophical debate, but have become a component of far-larger economic issues involving federal spending and revenue, and financial structure realignments.

Ed Clautice believed that helping others and staying physically and socially active would help him maintain a long and happy life. Apparently, he was right.

Clautice, who died last year at age 92, competed in local events, including the PA Senior Idol contest hosted by Online Publishers and the senior games.

He also participated in the Baltimore Longitudinal Study of Aging for about a quarter-century. When he died, he donated his body to the study as an anatomical gift. * * * [Links added.]

The article noted the value of staying active bodily, and challenging the mind educationally, to maintain physical and mental health into a long life.

Studies also show that staying mentally and physically active can prevent dementia, [said Dr. Luigi Ferrucci -- Director of the Baltimore Longitudinal Study of Aging and editor-in-chief of Journals of Gerontology Medical Science].

"He played bridge just a week before he passed," said Ed Clautice's son, Ed Clautice "the younger."

He described finding a diary his dad started writing in the 1930s.

"He would keep track of how many hours a day he studied," the son said. * * *

Ironically, and quite appropriately given Ed's death, the 2009 Pennsylvania Senior Games, an amateur athletic competition, will be held July 20-26 in York, PA.

Another opportunity for seniors to strut their stuff on stage is underway now.

It took some persuasion from his co-workers for Martin Bentley Krebs of Springettsbury Township to audition for the PA Senior Idol competition Tuesday at York Little Theatre in Spring Garden Township. But after learning he was among the top three performers and will advance to the finals, he was glad he gave it a shot.

"I feel like the new kid on the block . . . the freshman," he said and added that he and family members close to his age recently discussed getting older.

"We seem so much younger at this age than our parents did."

About 100 seniors in five counties auditioned for the event, said Kimberly Anderson, events manager for Columbia-based On-Line Publishers Inc., which hosted the contest.

The winner of the contest, which is open to Pennsylvania residents ages 50 and older, will receive a trip for two by limousine to New York City for dinner and a show. They'll also be invited to perform at the six 50plus Expos that Online Publishers hosts in six counties each year. * * * [Links added.]

The website of the PA Senior Idol program opens with an energetic invitation:

Do You…Dance…Sing…Play an Instrument…Perform Magic…Tell Jokes?Have You…Ever watched “American Idol®” and thought, “I can do that!”Ever thought you’re good enough for the “big time”?

Here’s your chance to audition and become On-Line Publishers’PA STATE SENIOR IDOL!!

The PA STATE SENIOR IDOL competition is a fun, motivational experience for today’s active adults. Many participants have never performed before a live audience.

Live your dream! Show the community just how much life there is after 50!

The Finals will be held June 8, 2009 at at the Dutch Apple Dinner Theatre in Lancaster, when "friends, neighbors and relatives of the finalists as well as the general public are invited to enjoy dinner at 5:30 and the talent show at 7:00 p.m."

If interested in attending, you can call the Theatre (717-898-1900) for tickets.

"To let other people see that life isn't over at age 85or whatever number you want to hang onto --activity . . . is its own award."-- Ed Clautice

The decision held that that Pennsylvania's Medicaid recoupment, anti-lien, and anti-recovery statutory provisions create enforceable rights under Section 1983; and that such provisions bar recovery by the Commonwealth directly from a Medicaid beneficiary of all personal injury settlement proceeds received in privately-conducted litigation, including that portion attributable to medical care already paid by Medicaid.

The court ruled that if a state wishes to recoup such funds, then it must join the litigation againstthird-party tortfeasors, along with the other plaintiffs.

Nora E. Gieg, Esq., of Tucker Arensberg, P.C. in Pittsburgh, PA, wrote a brief analysis of this important holding and considered its longer-term effects. I am pleased to post it, with gratitude for her contribution.

In a potentially striking blow to the Pennsylvania Medicaid (medical assistance) third-party liability (“TPL”) collection practices, the Honorable Joy Flowers Conti, Judge for the United States District Court for the Western District of Pennsylvania, issued a Memorandum Opinion dated March 25, 2009 in Tristani v. Richman et al. (PAWD Civil Action No. 06-694), a pending class action lawsuit against the Pennsylvania Department of Public Welfare.

The Tristani ruling fills a gap left by the United States Supreme Court’s decision in Ark. Dep’t of Health and Hum. Servs. v. Ahlborn, 547 U.S. 268 (2006) regarding a presumed “exception” in federal law permitting state medicaid agencies to effectuate mandatory TPL recovery through the imposition of liens on Medicaid recipients’ personal injury proceeds.

The United States Supreme Court’s Ahlborn ruling "assumed" that Federal Law created an exception to the Anti-Lien and Anti-Recovery provisions because the parties therein had stipulated as much. Now, the Tristani opinion squarely addresses validity of such an assumed exception, which the United State Supreme Court was forced to “leave for another day”. 547 U.S. 268, 284 n. 13 (2006).

In an opinion as dense as any law school hypothetical wrought with interpretations on due process, civil procedure, qualified immunity, takings, and interpretations of Congressional intent, in her Tristani opinion, Judge Conti reasons that the Federal Anti-Lien and Anti-Recovery provisions, 42 U.S.C. §§1396p(a)(1) and 1396p(b)(1), preempt Pennsylvania state law at 62 Pa. C.S. §§ 1409, et seq. under the Supremacy Clause of the United States Constitution, inasmuch as Pennsylvania’s TPL statute permits liens on the personal injury actions/proceeds of Medicaid recipients.

Finding the Federal Anti-Lien and Anti-Recovery provisions to be unambiguous, the District Court gave no deference to the interpretations of the U.S. Department of Health and Human Services on which the the State Medicaid Agency and Pennsylvania General Assembly ostensibly relied in passing the Pennsylvania TPL statute.

Instead, the District Court found that federal law requires State Medicaid Agencies, like Pennsylvania's Department of Public Welfare, to commence direct actions against liable third parties for the cost of Medicaid to recipients, stating in no uncertain terms that the DPW’s “free ride” was over.

The District Court noted, however, that federal law did not leave State Medicaid Agencies without recourse. The Court reasoned that the Pennsylvania TPL statutory scheme permits DPW to assert its own interests in personal injury actions against third party tortfeasors without violating the Federal Anti-lien and Anti-Recovery Provisions

The Court found that DPW's intervention in -- rather than “liening” of -- settlement actions, was the proper method of recovery. It also held that Pennsylvania’s statutory default calculation of 50% for “unallocated” settlements was a valid amount of recovery.

Plaintiffs in the Tristani action had also asked the District Court to determine whether Pa. C.S. § 1409(b)(7)(iii) contravenes Section 1396k(b). Finding neither named plaintiff able to establish a cause of action in this regard, the Court left open for another day the efficacy of Pennsylvania’s statutory authorization for the collection of managed care organization expenditures, as opposed to capitation payments.

The Tristani ruling, if not altered on appeal, would shake to its core the traditional method of TPL recovery in Pennsylvania. This ruling likely would create long-reaching effects for TPL recovery nationwide, too.

However, review of the docket reveals that steps are already in place to appeal the trial court's ruling. Thus, some uncertainly exists as to the current force of the Opinion, inasmuch as it lacks the force of an "order".

Pending further appellate review of the Tristani opinion, both State Medicaid Agencies (seeking recoupment of funds expended for the fiscally-strained Medicaid programs) and Plaintiffs’ counsel (seeking maintenance funds for their injured clients), may find themselves in a precarious position with unpredictable options in situations which demand action.

Trying to lure wealthy Americans to disclose assets hidden offshore, the IRS on Thursday announced a six-month program that offers lower penalties to those who come forward and pay taxes due on the secret holdings.

The offer includes clients of UBS, the Swiss banking giant that last month gave federal investigators the names of American owners for about 300 accounts in a continuing federal court showdown.

Along with lower tax penalties, those who comply are expected to avoid criminal prosecution.

"This is a chance for people to come clean on their own," said IRS Commissioner Douglas Shulman.

"For taxpayers who continue to hide their heads in the sand, the situation will only become more dire." * * *

"IRS increases pressure on Swiss bank clients" (03/26/09) by Devlin Barrel, published by Associated Press, who noted: "[Taxpayers] coming forward are now confronting a list of nearly 30 detailed questions, asking not just about financial documents, but any travel to conduct banking business, documents and correspondence related to the accounts, and which bank employees helped them manage the accounts." * * *

"UBS Offshore Customers Offered Eased Tax Penalties" (03/26/09) by Ryan J. Donmoyer, published by Bloomberg, who noted: "It is legal for Americans to have money in offshore accounts, which many do for legitimate reasons such as when they own a home or business overseas. The accounts must be disclosed to the Treasury Department when they hold more than $10,000, and U.S. taxes must be paid on any income earned."* * *

"I.R.S. to Ease Penalties for Some Offshore Tax Evaders" by Lynnley Browning, published by The New York Times, who noted: " In another shift, the I.R.S. will generally not prosecute taxpayers who come forward voluntarily, provided they are not drug dealers, arms merchants or others with ill-gotten gains. And it will not assess a 35 percent penalty on money secretly transferred to foreign trusts — a common method of tax evasion. The goal, Douglas Shulman, the I.R.S. commissioner, said during a briefing 'is to get taxpayers who have been hiding assets offshore back into the system.'" * * *

"IRS launches crackdown on offshore tax evasion" (03/26/09) by Corbett Daley, published by Reuters, who noted: "IRS memos sent to agency examination staff said offshore tax cases should 'receive priority treatment.' 'Offshore cases sent to the field are work of the highest priority," said one document, which was made public by the IRS. "Examiners should utilize the full range of information gathering tools in properly developing offshore issues with special emphasis on detecting unreported income. This includes interviewing taxpayers, making third-party contacts and timely issuing summonses to taxpayers and third parties." * * *

"IRS Cuts Penalties to Lure Tax Evaders" (03/27/09) by Evan Perez & Tom Herman, published by The Wall Street Journal, who noted: "A key part of the program, IRS officials said, is 'developing intelligence' on bankers, lawyers, accountants and others who help the rich hide assets from tax authorities. This raises the likelihood that the IRS and the Justice Department could take aim at major financial firms, as they have against UBS AG, the Swiss bank that admitted in a settlement last month that some of its bankers had helped U.S. clients evade taxes." * * *

Clearly, past tax law and current tax return forms require that a U.S. citizen who has an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return.

The IRS has made various tax amnesty offers as recently as 2005 and 2003 to enforce these rules. But the political and economic climates have chilled sufficiently to steel the IRS' intentions towards non-reporting citizens.

For those U.S. citizens who have continued to ignore the legal requirements of reporting and paying income tax, the "amnesty" program may be viewed as harsh, but it may be their last chance before criminal prosecution.

Offshore accounts and trusts have been utilized by some Pennsylvanians to avoid both federal and state income tax, as evidenced by a prosecution in Pennsylvania announced recently by the IRS on its website in a posting entitled "Pennsylvania Father and Sons Sentenced in Tax Fraud Scheme."

On March 26, 2009, in Scranton, Pa., Wendall Sollenberger was sentenced to 42 months in prison and ordered to pay $1,274,615 in restitution to the Internal Revenue Service (IRS).

Last week, Avery Sollenberger, Wendall's father, was sentenced to 44 months in prison and Gary Sollenberger, Wendall's brother, was sentenced to 42 months in prison. In September 2008, a jury found Avery, Wendall, and Gary Sollenberger guilty of conspiracy to defraud the IRS. According to court documents, the Sollenbergers own and operate a house framing business in Hanover, Pennsylvania.

Evidence introduced at trial stated that beginning in 1994, Wendall, Gary and Avery began to employ a deceptive scheme consisting of bogus trusts, a foreign corporation and an off-shore bank account in Cyprus to conceal assets from the IRS. The three men have not paid any income tax on their business earnings since 1994.

During the trial, the government also introduced evidence of defendants expenditures including the purchase of a $100,000 race car, a $40,000 custom made motorcycle, a motor boat, gold, silver, rental properties, a second home in Altoona, Pennsylvania, and hunting trips to Idaho. * * *

[The IRS Commissioner] emphasized that the terms being offered for the disclosure of offshore accounts are an outgrowth of current policy and carry penalties at a level consistent with voluntary disclosure programs in the past.Within this framework, Shulman enumerated the amounts that would need to be paid by taxpayers with heretofore undisclosed offshore accounts who "come clean" under the program:

Back taxes due on newly disclosed assets for the last six years;

Interest due on these back taxes for the last six years;

A 20-percent accuracy-related under Code Sec. 6662 or a 25-percent delinquency penalty under Code Sec. 6651 for each tax year at issue;

Looking to the past six years, a 20-percent penalty on the total balance of all the taxpayer's foreign bank accounts or assets during the year among the past six in which the accounts had their highest aggregate value. * * *

In the past, Pennsylvania did not elect to participate in the IRS' Offshore Voluntary Compliance Initiative, and, may not participate in this latest program. Therefore Pennsylvania residents intending to participate in this IRS amnesty program should consider their future interactions, too, with the Pennsylvania Department of Revenue.

PA EE&F LAW BLOG

To access the home page of (and many other postings on) the PA Elder, Estate & Fiduciary Law Blog, click here, or click the title bar & description at the top of this page. UPDATES at the end of postings add more current related material; and LABELS (listed below) characterize posts by subject matter.

PA REGISTERS OF WILLS WEBSITES

This list of PA Registers of Wills websites, by county, was compiled by Daniel B. Evans, Esq., of Philadelphia, PA. His complete online list of Registers of Wills includes addresses and links for fee schedules & forms, where posted.

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